MILAN — The market is in a wait-and-see mode, looking for further clarity on Brunello Cucinelli‘s stance on distribution in Russia. On Friday, shares of the Italian luxury brand closed down 1.7 percent to 83.60 euros each, for a market capitalization of 5.7 billion euros. The decline added to the steep plunge a day earlier, when shares fell 17.3 percent.
As reported, Cucinelli on Thursday afternoon firmly rejected short-seller Morpheus Research’s allegations of irregularities in the company’s business activities in Russia. Morpheus Research, which is betting Cucinelli’s stock will fall, issued a report alleging the company misled its shareholders and continues to operate stores in Moscow.
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A Bernstein report stated that “initial checks in Milan during fashion week point to the idea that several companies in the luxury and fashion sectors have been expedient when it comes to implementing sanctions against Russia and that the industry has found ways — both kosher and not — to do so. More to follow as we dig deeper, but Brunello Cucinelli needs to start damage limitation ASAP to protect its reputation with customers and investors alike.”
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It goes on to differentiate the customer, investor and legal perspectives. From the first, recent supply chain scandals have reportedly had “little to no impact on sales. […] Nonetheless, the response from customers regarding Brunello Cucinelli (at least from Europeans and some Americans) might be more pronounced because their brand identity relies on the idea of humanistic capitalism and because they pride themselves on selling ‘ethical and sustainable’ luxury.“
From an investor’s perspective, “losing trust in management means Cucinelli would lose its status as the ‘Italian Hermès’. Valuations are like reputations: they are built on predictability and reliability earned over time, but can be lost overnight.” From a legal perspective, “enforcement actions against Russian sanctions are inconsistent.”
At the Tod’s spring fashion show, asked to comment, chairman Diego Della Valle said Italy’s reputation “is very good, and we must maintain it. I am convinced of this and it gives me confidence to see how the country is performing. We must be very careful in passing judgment on situations without deep knowledge of them. I think our sector is filled with serious people, respectable and that work hard and well. I don’t think there is a design to discredit the country and in any case Italians are used to responding with facts.”
Turning around looking at the Tod’s artisans at work at the PAC, Milan’s contemporary art museum, he added: “This is what is behind our products, people around the world want to buy Italian products and it’s not storytelling.” Addressing Cucinelli’s situation, he said that “in such cases, the best thing to do is to let people work, they know what they have to do, they are serious and proper and they will know how to respond and will do it well.”
Banca Akros on Friday suspended its rating and target price on Cucinelli shares “waiting for a qualified opinion from [PwC] or another independent party.”
Intermonte analysts said: “We are confident the company, as it has always done in the past and as stated in its release, has correctly operated and in the respect of rules,” adding hope that “the next days will help to bring clarity on this issue.”
Equita highlighted that the company has a high level of inventory as a structural business model, around 29 percent of sales in 2024, mainly justified because it sells apparel (85 percent of the total) compared with its peers.
Brunello Cucinelli reported a 10.2 percent gain in first-half revenues to 684.1 million euros, compared with 620.6 million euros in the same period last year. The company is expected to report nine-month sales figures on Oct. 16.